January 25, 2010Leyshon Resources Has A Swag Of Cash And Its...

January 25, 2010

Leyshon Resources Has A Swag Of Cash And Its First Joint Venture With A Chinese Partner In Iron Ore.

By Charles Wyatt / www.minesite.com

Most of the deals in China are not done over a boardroom table or by fax, phone or e-mail. They are done over dinner in the evening, perhaps after a glass of cognac. So says Paul Atherley. He should know, as the boy from the northern midlands of England has been living in Beijing for the best part of six years, running ASX-listed and Aim-traded Leyshon Resources. So does he speak Mandarin? No, it is what is described as taxi-Chinese. It gets you about and you can shop and order food in a restaurant, but it would not be good enough to give an explanation of the laws of cricket. I think it is called kitchen-Hindi in India and Kings RoadFrench in Paris. So, good enough to gain the respect of the business community for effort, but not up to exam standards? That would be a fair assessment.

Back when Leyshon took its dual listing on Aim in October 2005, Paul came to London and explained that he was living in Beijing as he simply did not think it was possible to gain the full benefits from operating in China without being there permanently. Plenty of westerners were flying in and out at the time claiming to have done deals. Not all of them stuck. But Leyshon Resources managed to create the first Sino-foreign joint venture mining company in the Province of Heilongjiang in northeastern China back in 2004, and, through a unique province-wide agreement, was given access to over 50 projects across the 469,000 square kilometre province.

The joint venture was called Black Dragon Mining, and Leyshon had the right to earn an initial 70 per cent interest in it through the funding of exploration and feasibility studies. The two projects on which it focused in 2005 were the Zheng Guang gold project and the Duobashan copper project. A lot of water has passed under the bridge since then, and for much of the intervening time Zheng Guang was the main project. Now it has been sold, and Paul is clearly delighted to report that there were virtually no legal or accountancy costs deducted from the sale price which gave Leyshon a healthy profit of US$20.2 million over the US$22.5 million that had been spent on the project over the years.

The result is that the company now has A$47.8 million in cash and term deposit in Australia and RMB 1.98 million in Beijing, which adds up to A22 cents per share. Paul has therefore decided to buy-back around 10 per cent of the companys equity, as he can purchase shares worth A22 cents for A17.5 cents.

The plan for the future is to capitalise on the experience and expertise gained by the team in Beijing and to acquire mineral and energy projects which will be of interest to Chinese companies hoping to expand at home, or in certain countries overseas. Deals can then be negotiated which may involve off-take agreements, partnerships or outright sales. Coking coal and iron ore seem to be top of the pops at the moment, out of the 50 projects currently being reviewed, and the focus is on a big band of land sweeping from Northern China to Southern Mongolia. China is intent on boosting domestic production of both coking coal and iron ore, which may not be very good news for Australia, but Paul says the rate of development of regional infrastructure to facilitate this expansion is astonishing.

Leyshon is certainly not going to sit around luxuriating in the fact that it now has some money. It has already entered into a 51:49 exploration and production joint venture with Qiqihar Tai Fu Trading Company. This deal in itself confirms the excellent relationships the company has built during its time in China, as Qiqihar Tai Fu Trading Company was one of the bidders for Zheng Guang. It is a coal mining group from Heilongjiang, where Leyshon already has plenty of experience.

The joint venture involves the QHD Iron Mountain project in the Tang Shan district of Hebei in East China. The Tang Shan district is one of the main iron mining districts in the East China Iron Belt. In this part of the world, the industry is characterized by a large number of smaller operations mining magnetite from near surface banded iron formation style deposits, which then process the ore through simple magnetic separation plants to produce smelter grade concentrate for sale at the mine gate. Sounds simple enough, and by mid-April a resource estimate on QHD should have been generated from current drilling.

Paul Atherley is sifting through other joint venture opportunities in coking coal and iron ore that have the potential to fit the criteria set out in the proposed investing policy. Leyshon will stay in Beijing so that it is in close communication with Chinese groups who may be interested. He says that he will also be willing to go further afield if it suited one of his potential partners, and that the company will be flexible, to a degree, in the commodities targeted. Its a very interesting position in which he finds himself, and further deals look likely this year.